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Saturday, 31 July 2010

If you'd like to sit through an hour-long TV current affairs programme to watch me talk about Chris Carter and Phil Goff for about a minute on a shaky Skype connection, then I'm obliged to tell you that a link to this morning's TV3 programme The Nation, hosted by Duncan Garner, should appear shortly at The Nation’s home page.

I show up with about one minute to go. Making an awful lot of sense. :-)

Back around 2007, when things were beginning to get hairy economically, a few of us were saying that governments must not help to prop up all the bad positions that had been taken in the boom; that the poison of all those malinvestments had to be expunged before recovery could take place; that propping up the malinvestments would simply leave zombie companies walking around eating the economy’s sustenance; that there was no choice at all about the economic pain we now had to endure for awarding ourselves an unsustainable boom—the only choice was whether it took a year or so of short, sharp pain or (like Japan) ten years or so of long drawn-out misery.

“Notes from the latest Fed Beige Book that make it clear that the Fed is (finally) beginning to understand the entrenched and endemic nature of this crisis. While the notes are written in shamanic double-speak, the point is clear: members of the Fed don't expect the economy to get back on track until 2015 or 2016.

'Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process to take no more than five to six years.’

“The simple reality the Fed is waking up to is that the structural underpinnings of the economy are damaged beyond any quick or easy fix. “That's because until the excess and/or bad debts are wrung out of the system - either through default or raging inflation - there's no chance of any sustainable economic recovery. Each new government initiative - the latest being financial reform - that doesn't decisively address the debt, but rather tightens the government's around private enterprise, only serves to delay or prevent economic revival. And so each new day will bring more distress and bankruptcy to homeowners, businesses, and banks.”

As we’ve said here before countless times and with every metaphor we can muster, the poison has to be allowed out of the system before the economic patient will come right. No amount of phoney funds is going to turn the lead weighing us down into gold. Letting real prices and wages fall to match the new demand and monetary conditions—remembering that one man’s prices are another woman’s costs--allowing everybody to do more with the lower amount of money and demand now going round--is in the end the only sustainable way to effect that process. Keeping up prices with unsustainably low interest rates and truckloads of funny money is not.

There is no choice about the pain of correction. It has to happen. Unprofitable businesses need to be liquidated and the resources therein transferred to something more profitable. Bad loans need to be liquidated, and any assets involved used as fertiliser for real growth. People have blundered, and we have no choice about the need to liquidate those blunders so they don't go on consuming real resources. We have no choice about correction. The only choice is how long it takes -- how long the pain of correction will last -- and how many real resources are consumed along the way.

Here’s Peter Schiff talking about Alan Bollard’s rate rise this week, and why The Fed can’t do the same. Not for years. And why that's not something in any way to be happy about.

“Understanding recession as not enough demand is about as certain a way to lose the thread as it is possible to be. In an exchange economy, people producing what others do not want to buy is the cause of unemployment and a flat economy. If you want to fix it, you need to let market adjustments happen. This is all brought to mind from the latest gloom discussed in a survey of American economists compiled and published by the Associated Press…”

First, even while they’re contemplating firing up the printing presses for Quantitative Easing II, they still have no plan whatsoever to mop up after those truckloads of dollar bills were pissed away in Quantitative I. Scary.

Second, he asks (quite sensibly) what sensible investor is going to risk his money at the moment when he has no idea what the government or its agents are going to try next. This, people, is precisely the regime uncertainty that Robert Higgs argues helped extend the Great Depression out for more than a decade-and-a-half. [Hat tip The Cobden Centre]

40 miles on electricity alone! Gosh! What a wonder! No wonder some people are calling it “The Voltswagen — The people’s car that the people must pay for.” That’s payment through the nose, because even with a price tag of US$41,000, more than a top-range Cadillac, it will still lose money. No wonder government-owned Government Motors is after government subsidies to make it work.

Hooray for Government Money.

Notes Peter Foster at the Financial Post,

“GM’s marketing chief, Joel Ewanick … said the Volt was ‘starting the world on a different path.’ Would that be The Road to Serfdom?”

Ineptly posting an anonymous letter announcing there will be a leadership coup—on Tuesday, no less—and saying when caught that his reason for trying the shabby deception was he hoped it would cause a leadership coup.

A twisted ham-fisted ruse to pretend his idiocy hadn’t just made more unlikely what he claimed to be trying to foment.

Lying low-life power-lusting scum.

Which makes him just like every other politician, really. And utterly undeserving of all the attention.

Just got home from a fantastic performance by the APO of Mahler’s Das Lied von der Erde, i.e., The Song of the Earth. It came at a perfect time for me, because I’ve just got the worst kind of news about a young friend from many years ago—and Mahler’s piece, you see is a sort of response to exactly that kind of news.

Gustav Mahler wrote it when he’d just been given the heartbreaking news that his own young life was near its end, observing in the text he then set to music expressing his reaction to that news that while the beauties of the everlasting earth “will stand firm for a long while and bloom again in spring,” in contrast to the short space of time we humans have to enjoy it.

This could turn to anger, as it does in the text of the opening, The Drinking Song of Earth’s Sorrow, even as the music is telling you a different story …

Strumming on the lute and emptying glasses - these are the things that go together. A full glass of wine at the proper moment is worth more than all the riches of the world! Dark is life! Dark is death!

The heavens are forever blue and the earth Will stand firm for a long time and bloom in spring, But you, Man, how long will you live then Not a hundred years are you allowed to enjoy Of all the tawdry baubles of this earth!

Look down there! In the moonlight, on the graves crouches a wid, ghostly figure - It is an ape! Hear how its howls resound piercingly in the sweet fragrance of life! Now take the wine! Now is the time - enjoy! Empty the golden goblet to the bottom! Dark is life, dark is death!

… but moves through contemplation of Youth and Beauty and the changing seasons, before ending with a final Farewell to the earth—a salute that embraces every part of it while resignedly pushing off.

The sun departs behind the mountains. In all the valleys, evening descends with its cooling shadows. Oh look! Like a silver boat, the moon floats on the blue sky-lake above. I feel the fine wind wafting behind the dark pines!

This, mind you, is set to stunning music that You Tube just can’t do justice to. But as I let it soothe me, I couldn’t help thinking that this was a different way to face death than that famously expressed by Kipling, who counsels not resignation but something very different:

…If you can fill the unforgiving minute With sixty seconds’ worth of distance run, Yours is the Earth and everything that’s in it…

Thursday, 29 July 2010

Another week, another child killed by a person who was supposed to be their guardian, another evasion of responsibility by those ultimately responsible for this savagery—i.e., the politicians paying no-hopers to have children they don’t want.

Yesterday you called for an end to "free money." People rang in and said "enough is enough." Now the assaulted baby is another infant death statistic. The outpouring yesterday was a replay of the outrage we heard after the death of Lillybing and too many others. After that particular case I got mobilised and started up a petition calling for a parliamentary review into the DPB. I wrote to every newspaper , advertised, called talkback, knocked on doors, as did many others. What happened? We collected 1400 signatures. A hugely disappointing result. Time and time again people wrote to me that they were having difficulty getting others to sign because everybody knew somebody - a friend or family member - on the benefit. Or that they supported the DPB system. Personally it was a very difficult time with a good deal of the opposition to my petition getting nasty via threats and public ridicule. I have continued to do what I can through articles, submissions to select committee, standing for parliament twice and working in the community with needy families. My point is this Dan; There is not enough political support to stop the "free money" and all of the devastation it visits on children. You will find no support for ending or substantially reforming the DPB from the Maori Party , Labour, the Greens or even National. In fact, the formation of the unofficial Welfare Working Group comprising Sue Bradford, the Child Poverty Action Group, academics and the mainstream churches is gearing up to fight for the status quo, or even higher benefit levels. Your listeners seem to want the sort of change you were advocating yesterday yet at election time they vote for parties that refuse to form policies that would see an end to the cash for babies programme. It doesn't have to be the way it is in NZ. The only other countries that have DPB-like benefits are England, Ireland and Australia. Elsewhere support is temporary and conditional. In the US teenage mothers must stay at school to be eligible for financial assistance and they must live at home or in an adult supervised setting. Their teenage birthrate, which is high like New Zealand's, has been falling steadily along with the abortion rate and dare I say it, their child abuse and general crime rates. They have a long way to go but at least they are going in the right direction. Meantime our politicians are too afraid to grab the bit between their teeth and do something decisive despite many knowing that the level of child abuse and neglect New Zealand is experiencing has everything to do with incentivised and casualised child-bearing. Because the state will provide on an indefinite and no-questions- asked basis, mothers are abandoned by or get rid of the fathers of their babies, and are then latched onto by new males who want sex and a roof over their head with no obligation to be a breadwinner. They do not make wonderful step-fathers. It's just dreadful what we have let develop under the guise of a 'caring, compassionate' welfare state.

Not a sea of tears nor a cavalcade of hand-wringing will stop the babies being killed.

The rum old Gareth “Captain” Morgan continues to demonstrate that the success of his Kiwisaver Fund is inversely proportional to the amount of time he opens his yap to criticise his competitors. Even Adolf at No Minister reckons it’s Time To Boot The Yapping Fox Terrier::

“[Yesterday's published summary from Morningstar is a jaw dropper, coming just a few days after Morgan had the sheer gall to use his Herald column to castigate his competitors for poor performance. Here's the 'money quote:-'

‘"The biggest contrast is in the growth sector where the Gareth Morgan Growth fund has attracted the most money at $121 million but is the worst performer over two years and bottom of the pack over the last three months. ‘The Gareth Morgan Balanced fund was also the largest balanced fund at $165 million but was second from bottom over two years and 18th out of 27 over the last three months.’

“It's time this financial undertaker made an undertaking to get out of the advice business. Clearly, he is a not much more than a mouthier version of Bryers and Petrecovic.”

The Morningstar figures on Kiwisaver providers show once again that the whole Kiwisaver scheme is little more than welfare for suits with nothing in them—a mechanism whereby your money (and a good dollop of taxpayers’ money as well) is delivered to puffed-up paper shufflers to make smaller than the rate of price inflation (and if your chosen provider is Gareth Morgan, much smaller) from which they extract exorbitant fees.

Inflation only makes the incredibly poor returns they deliver even poorer. And frankly, as we should all know by now, inflation is just another word for stealing from savers: stealing from small savers, and giving it to suits to piss up against a wall. Get rid of monetary inflation, and ipso facto you get rid of the desperate need for fancy schemes that purport to address the superannuation problem.

Here’s a few wee pieces of advice about rest homes and retirement villages it might be useful to know about, stuff I wish I’d known before helping out both my mother and my in-laws move in recent years—my mother into a rest home on medical advice; the latter into a retirement village by choice, then into a rest home because their quack said so. Advice they’ve offered that might just be helpful to you or your folks too.

First, everyone likes to be independent, but when being independent is becoming a struggle why not pay for someone else to sweat the small stuff for you, so you can spend what time and mobility you do have doing what’s really important to you (playing golf; compiling Satanic incantations; plotting world revolution) in what in every respect will still be “your own place.” Of those I’ve met, few who do make the move seem to regret being able to walk, or be wheeled, home from happy hour.

Also, it seems that the earlier you do move in, the more likely you’re going to be able to make friends there. If you move in when you’re still healthy and able to sink a couple every night, you’re more likely to make new friends who’ll stay with you as you age than you will if you wait until you’re deaf as a post and completely incontinent. There’s nothing that turns off a potential new scrabble companion so much as a pool of urine on the floor, and a partner who can’t hear the table talk. So if you’re going to move, do it early.

Third, there’s a difference between a retirement unit, a rest home and a nursing home (see below). Some villages have all three; some don’t. This is more important than you might think. There are spry 102 year-olds still living in their own apartments with no more need for medical care than our pedigree cat, but they’re the exception. over the course of most people’s retirement they’re probably going to need all three, choosing a village that does have all three makes the transition from one to the other far less painful for everyone concerned (including your children) and when you do make the move “upstairs” it means the friends you made “downstairs” are still around to remind you of that time you lost your teeth down the waste master.

Fourth, everyone likes to choose their new home themselves. But you never know when bits are going to start falling off, or a fall might leave you immobile, or when your quack might tell you it’s time for a move—and when or if that happens, you’ll be in no condition to look around yourself, leaving your kids to decide for you. So if you want to plan ahead and make things easy for yourself, you can either be nice to your kids now (and who needs that kind of pressure), or you can make your decision on where you favour now so you’ll know in good time where you want to go. Just in case.

As for me however this is all academic, since both sets of parents are now well set-up and happy, and I plan on working right up until I’m 92 when I keel over and have a heart attack over my drawing board. I just though you might find it useful.

Q: What’s the difference between a retirement unit, a rest home and a nursing home ?

A: For some reason doctors, nurses, physios, social workers and operators of retirement villages always assume everyone knows the difference. I didn’t. Most people don’t. Why would you? A retirement unit (either an apartment or a stand-alone unit) is just like a unit in a small village, and in the best retirement villages there is a continuum residing in these, from folk who are still independent, active and vigorous (those who’ve moved in early) to those whose physical horizons are becoming more limited. You usually buy this unit yourself. A rest home unit provides for less active folk, who need help or care of some description. Depending on the village, you can either buy or rent, and in either case you pay a substantial monthly service fee on top depending on what services are needed. (Some villages also offer a “serviced apartment,” which is somewhere in between the retirement unit and the rest home unit.) And a nursing home unit (or “hospital,” even though they can’t even draw blood) is for when you’re unable to do much at all for yourself.

Reading Doc McGrath’s piece yesterday on the perfidy of the increasing number of random police stops, I thought immediately of a “short story” the founder of Libertarianz, Ian Fraser, wrote in his Liberty newsletter back in 1986 – i.e., way before most of you were born.

The story’s theme is well summarised by another comment made by Doc McGrath this morning:

Logically, some people would be happy if the roadside sniffer test was extended to a check of driver licence, warrant, registration and road user charges (oh, I forgot, this happens already). Or if the officer asked nicely if he could have quick look in your boot for illegal firearms, marijuana or a bald spare tyre ("this will only take a few seconds, sir, then you can be on your way"). Or asked for a DNA mouth swab ("there's nothing to fear is there, sir, if you're innocent?"). Or quickly checked the children in the car for signs of child abuse or neglect ("wouldn't want to miss an abused child, sir"). The problem I see is that there is no limit to what the government can tack onto these roadside testing areas. I imagine outstanding fines or rates bills will be another thing people will be asked about. There is no limit, and that's what gets up my nose… It's the principle, people, that the police can stop and detain people who have done nothing wrong, and interrogate them for as long as they like. That gets up my nose. “And what about the people who are killed or disabled despite the massive numbers of police out sniffing innocent drivers, while the victims of real crimes such as burglary have to wait days for a policeman to appear?”

So with that introduction I give you “Jumping the Gun,” which I’ve lightly edited for anachronism.

Jumping the Gunby Ian Fraser

The lights flashed. The young man reluctantly pulled over to the side of the road. The pulsating red glow added a sense of urgency to the dull feeling of despair that suddenly overcame him. But there was nowhere to run and no point in. attempting it.

“Would you mind stepping out sir”, said the officer. His exaggerated politeness underscored his absolute authority. He stepped back from the car door. The young man responded quickly, he felt safer looking the officer in the eye. “What’s wrong? he said. “A routine check sir,” responded the officer. The young man had thought he’d asked a question. The officer thought he heard a plea for mercy. “May I see your ID card?” he continued. “I left it at home”, the young man replied. He always left it at home at night. He felt much safer without it. “You realise that the law requires you to carry your ID at all times”, reprimanded the officer, and he paused as if to observe the effect of his words on the face before him. Yes, this is what he liked about this particular job. His carefully measured words nearly always drew a predictable and satisfying response. Not this time. Somehow, the darkness of the night was draining the expression from the young man’s face. “What’s your name?” queried the officer. His abruptness almost caught the young man off guard. “William James”, he blurted. It wasn’t really a lie, just a matter of interpretation. He been christened Wiremu and ha preferred the name, but he knew what his name must be tonight. “What are you doing out at this hour?” the officer prodded, “Aren’t you aware of the curfew?”

The officer’s questions required no answers. Everybody knew of the curfew. It had been in force for nearly one year. There had been some vocal opposition at frst, but not sufficient to thwart the intentions of a government driven by the twin thrusts of the country’s fear and anger. Violent crime was endemic. There was no other solution.

Wiremu thought for a moment, then said, “I was at a friend’s place and I fell asleep. But I just had to get home as my wife is pregnant and is already overdue.” It was all true. The friend was a girl. “Well I have to take you in for questioning”, said the officer. “You can phone your wife from there.” Wiremu’s heart missed a beat as he tried to think of a way out. There was none. “I’ll take your keys”, demanded the officer, and he drew his gun as if anticipating trouble. That put an end to any thoughts of escape. Wiremu reached into the car and handed them over. The officer nudged him into the police wagon. “What about my car?”, stalled Wiremu. “Somebody might nick it.” “Not bloody likely,” scoffed the officer. “You wouldn’t be able to give it away.”

The distance to the police station was five kilometres, but the ride was interminable. Wiremu contemplated leaping out of the back door but he knew that all police wagons had central locking systems. Anyway, he was no James Bond. He cast his mind back. He’d spent many a night at Lorraine’s in the past few months, and he’d got home safely. He thought he’d found a foolproof way; a particular configuration of back roads and by-passes that were notorious for both their condition and emptiness. Dark as hell, and who would have thought ... the police wagon pulled to a halt. The officer got out and opened the back door. “We’ll have to ask you a few questions and run the information through to our central computer,’ he said. “It will take about half an hour.”

Wiremu was led into a small, brightly lit office. That didn’t worry him, he knew his appearance wouldn’t give him away. What did worry him was the computer. “You say your name is William James?” “Yes.” “Your address?” “25 Arcadia Way.” “When were you born?” “July the second, 1965,” “Where do you work?” “I’m self-employed.”

The questions had the precision of a machine gun. Wiremu was sure they would hit target except for one thread of hope. There was a real William James and he did live at 25 Arcadia Way and he was self-employed. Wiremu knew all this, he had rehearsed it many times before, as if his life depended on it-and it did. The officer left the room. Wiremu’s mind raced. Had he stated everything correctly? Had he missed anything out? He didn’t know for sure, he would just have to wait.

The officer returned, sooner than expected, accompanied by one other. His face showed no hint of what he was about say. At that moment Wiremu felt he was in no-man’s land. “Well, Mr Wiremu Matthews,” said the officer, with an air of triumph. “I have to inform you that you are under arrest. You are charged, under section A of the Emergency Violence Suppression Act, with violating the MPCC laws”.

Wiremu knew the rest. The Maori & Polynesian Control Curfew, called MPCC by its supporters and “black death” by it foes, was perhaps the most loved and hated law in the whole country.

The law was very simple. All males on the streets between 10pm and 6am were liable to random interrogation. If it was discovered that they had 20% or more Maori or Polynesian heritage, then they were arrested, charged and imprisoned for up to one year.

How was the law justified? Easy. It was a well-known fact that Maori & Polynesian men, while representing the smallest percentage of the population, made up the largest percentage of violent offenders.

The statistics were irrefutable. The correlation between being a brown-skinned man and being a violent offender was too glaring to be ignored. Encouraged by massive public support, the legislature had attacked the cause at the root, by putting the potential offender away before he could even commit any crime.

Wiremu was stunned. “How did you find out my real name?”, he gasped. The officer just smiled, and led him off to a cell.

An implausible story you think? Consider this: The idea of “prior restraint” for Polynesian males, simply because they statistically make up the largest group of violent offenders, now has a socially acceptable precedent - random stopping of drivers for the “crime” of having “too much” Polynesian in their blood was no different in principle than random stopping of drivers for the “crime” of having too much alcohol in their blood.

The justification for random stopping is that the driver may have been drinking. If the driver is found, by breathalyser or blood test, to have above a certain prescribed quantity of alcohol in his system, then he is guilty. Guilty without even having committed an actual crime.

Charging an individual with this “offence” is not justified on the basis that the individual has committed a crime, but because the group to which he now belongs might. Statistically, alcohol plays a large part in road accidents (and brown-skinned males play a large part in crime); therefore an individual with “too much” alcohol, is likely to be involved in an accident (and brown-skinned males out late at night are likely to be involved in crime).

In random stopping and the ensuing convictions for having drunk “too much,” the public has accepted the principle of “prior restraint” on the basis of a collectivised guilt. If an individual seems likely to commit an offence because he or she is part of a particular “statistical cohort”(causing a road accident; breaking into people’s houses) then it is appropriate to “restrain” him or her prior to the act.

If it is a crime to drive with a certain quantity of alcohol in your blood, because, statistically the highest percentage of road accidents are alcohol related, then it could easily become a crime to be out on the streets after dark with a certain quantity of Maori or Polynesian in your blood. There’s a good statistical chance that you’d be up to no good, and it would be better for society as a whole if you were “restrained” BEFORE you could commit a crime.

Just as it is nonsense to assume that a particular individual is at risk just because he has Polynesian in his blood, so too it is nonsense to penalise an individual driver just because he has a certain quantity of alcohol in his blood. There are good drivers and bad drivers and all the shades in between. There are also drivers who drive better, even after a few drinks, than many who are totally sober.

Random stopping, and consequent conviction for blood-alcohol level infringement, is the thin edge of a particularly repulsive wedge. The public mood only has to shift a little to see the same principle applied to other areas.

Wednesday, 28 July 2010

I don’t often post press releases here, though Lord knows I get sent enough. But this one is different. This one is special. This one is … oh sod it, just read the press release and you’ll know why I’m as excited about it as a toddler in a toy store.

A New Zealand motivational design and publishing company is taking on the world with a revolutionary line of motivational posters that will alter forever what people expect from motivational art.

For the first time in the world, NZ company Inspirationz Inc has coupled an all-star line up of sculptors and painters to quotes that inspire and enthuse—producing, for the first time, a catalogue of fine art-quality posters to inspire people to move mountains. A contingent of ten nationally and internationally renowned contemporary artists has licensed their art for the catalogue, including two notables, Joseph Sheppard of Pietrasanta Italy, and Bill Mack of Minneapolis Minnesota, both of whom have their work in the collections of US presidents and on display at sites of historical significance, such as Liberty Island, the NBA Hall of Fame, and the Vatican. Additionally, artworks from some of the world’s great past masters are featured, including Jules Dalou, Caspar David Friedrich, and Lord Frederic Leighton, to name only a few of the stellar cast. “For years I’ve collected quotes to ignite my own enthusiasm and inspiration,” says inspirationz™ founder Terry Verhoeven, “but when I saw the wit and wisdom of Lincoln, Voltaire and Ghandi combined with pictures of amusing orang-utans, placid lakes, and air-brushed shrubs, I thought to myself, ‘those great words – and minds - deserve better than that.’” “What we’ve done is to combine the wit and wisdom of the ages with real art that inspires the soul.” The result is astonishing, and can be seen at the newly-launched inspirationz.com website and in a sensational new video released to YouTube titled ‘Ignite Your Soul’ which showcases inspirationz’ designs to dramatic effect with the use of motion graphics and special effects.

“We all need a source of daily inspiration to help us to overcome life's challenges and unlock our potential for greatness,” explains Verhoeven, whose love of art and its power to inspire is at the heart of this new venture. “Great art and literature has traditionally fulfilled that role. inspirationz builds on this foundation, but goes a step further, creatively integrating the two by combining the world’s most prophetic and inspiring words with their aesthetic equivalent in art ... the duo is then packaged into an affordable product that may be purchased as a personalised gift or used as the perfect décor enhancement for one’s home or office.” Verhoeven says the goal is for inspirationz designs to find their way onto bedroom and boardroom walls around the globe as a source of daily inspiration, and in so doing, introduce the world’s great art to people who otherwise wouldn’t have seen it.

###

About Inspirationz IncInspirationz Inc is a premier motivational design and publishing house headquartered in Auckland, New Zealand. The company’s mission is “To inspire the world through great art, affordably.”

One gun isn't enough. “That was what Linda Smith (a pseudonym) was thinking after two thugs broke into her Oklahoma apartment. One was holding a weapon … at her throat, and the other was pacing back and forth while holding her purse and demanding her money and valuables. She screamed, and was told if she screamed again, she'd be dead. “She was doing as police recommend in robberies –- comply with a robber's demands. But her Lady Smith & Wesson .38 special, which she carries by permit, was hidden in her purse –- and the purse was being held by one of the attackers. “Then the situation, suddenly, got much, much worse: One of the robbers demanded that she take off her clothes. “‘Come on, what are you waiting for,’ he told her as he started to yank on her sweatpants, trying to take them off. “Smith pleaded for her safety and distracted the attackers by telling them she would get her money, which was ‘in my purse.’ “The robbers inexplicably allowed her to drop to her knees and crawl across the floor to her purse, which the second attacker had dropped. “She reached inside, and the first shot was clear of the muzzle and into the torso of one of the attackers before she even pulled the weapon clear of the purse. Four more shots followed shortly and, in the end, one of the attackers was dead and the second was hospitalized facing a murder rap for having participated in a felony in which someone died. “Smith … explained she comes from a family that believes in self-reliance and courage…”

…unlike the people who, in New Zealand, have been successful in disarming women even from carrying mace. Or a taser.

Guns are our friends, because in a world without guns I'm what is known as prey. Almost all females are. Any male -- even the sickliest 98-pound weakling -- could overpower me in a contest of brute force against brute force. For some reason, I'm always asked whether I wouldn't prefer a world without guns. No, I'd prefer a world in which everyone is armed, even the criminals who mean to cause me harm. Then I'd at least have a fighting chance. “What the arms-control faithful really want is a world without violence, not a world without weapons. These are the ideological descendants of the authors of the Kellogg-Briand Pact, which purported to outlaw war. But we can't have a world without violence, because the world is half male and testosterone causes homicide. A world with violence -- that is to say, with men -- but without weapons is the worst of all possible worlds for women. As the saying goes, God made man and woman; Colonel Colt made them equal.” [Emphasis in the original.]

Let’s hear it for sisters being able to defend themselves. Like Cowboy Kate*…

One morning recently, I was driving through Masterton on my way to a rest home, where I had been asked to see a sick patient. What should I spot up ahead but a gaggle of police officers, half a dozen of them, blocking the flow of traffic. Up ahead of me, cars were stopped, and police officers were thrusting portable sniffer machines into drivers’ faces, fishing for evidence of alcohol ingestion.

In due course I was stopped by a police officer, asked to wind down my window and to count backwards from five into the hand-held sniffer. Instead of this, I commented that the law that allowed the police to do this was an invasion of the privacy of motorists. The officer did not seem to realise that in earlier days, police or traffic officers were not allowed to detain motorists without just cause -– they could only do so if (for instance) the person was driving erratically, had a light on the car not working, or if the car was obviously not of a safe enough standard to obtain a warrant of fitness. All this officer knew however was that he had unbridled power to stop my car and order me to breathe into his machine, and there he was (ab)using it.

I made my displeasure known to the officer, stating that detaining me without just cause was an invasion of my privacy, and that he had no moral right to interfere with people going about their daily business in peace.

My comments served to inflame him somewhat. Despite finding no alcohol on my breath, this defender of public safety started frantically scanning the windscreen of my car for evidence of missing paperwork –- an expired warrant, or worse: tax evasion via failure to pay road user charges. Sadly for the poor man, all papers were in order, which meant my two-year old car was probably roadworthy, and the IRD had taken their cut. I offered to show him my driver’s licence but he wasn’t interested. I was waved on, and drove away, still fuming. This was 10 a.m. on a Thursday morning. The alcohol from the Emerson’s beer the previous Tuesday evening had been successfully metabolised by my liver into less exciting molecules.

That same evening, I was pulled over again in a different part of town and asked by yet another policeman to exhale into a sniffer. This time I smiled and did exactly as asked. At last, I had won the battle over myself. I loved Big Brother. Well, not quite.

The test was once again negative. I was waved on. Over the next few days I got to thinking about the powers of the police and just what the law allows them to do. In their own words they can stop any car, anywhere, anytime, without the slightest shred of evidence that the driver or anyone else aboard has committed an offence against other people or their property. Innocence is no defence. Unless the fact that you are driving a motor vehicle makes one a carbon criminal. And as carbon dioxide is an end product of alcohol consumption, drinking and driving would thus contribute in two ways to catastrophic global warming.

But I digress. The police can stop anyone randomly with the excuse of checking for one of the many risk factors that cause driver impairment. If one doth protest too loudly, the scope of the examination is widened to include checks for evidence of tax evasion and expired currency of driver licensing and vehicle warrants of fitness and registration.

And why can they do this? Simple – because their masters, the state, own the roads. And this is the same agency that also has the legal monopoly on the use of force. Because of this infernal conjunction of affairs, they can unilaterally set whatever rules they like, regardless of any “buy-in” from those who use the roads, and enforce them in any fashion that they like. They can, and they do, any time they like. They can turn the roads into checkout terminals, motorists into cash cows, the police into de facto revenue officials—and the citizens they were supposed to serve and protect into subjects who made to comply and shell out.

It is time we the motorists fought back against this tyranny of tax collectors. Anyone over the limit with breath or blood alcohol faces a stiff fine and temporary loss of their driving permission slip. I have some difficulty with this, as although people with alcohol in their blood are often impaired in reaction times, co-ordination and fine motor skills, technically they have hurt no-one and have committed no actual crime (no crime in the sense that no-one deserves compensation). They have hurt no-one. They have not damaged property or people. There are already laws that provide for redress when a person wrongfully damages someone’s property or person. Drink-drive laws focus only on one risk factor, and one risk factor only. They are the foot in the door. Only a few steps away are roadblocks where police search cars for cell phones switched on, sources of music and even the presence of passengers, all of whom could possibly distract the driver and make accidents more likely. The principle is the same. Very soon we could have mandatory governors in engines to restrict road speed.

This is not targeting crime; it’s punishing pre-crime.

So, what does this libertarian suggest?

First, to stem the increasing loss in public support for the police because of this kind of jack-booted pre-crime policing, there should be instant compensation for innocent motorists when they are detained at dragnets and screened for evidence of toxic impairment. I’m talking five dollars per driver per stoppage. A tax refund, if you like. But just compensation for the inconvenience of being prevented from going about one’s daily business, particularly when time is money. and a lost opportunity to serve a customer is a net loss for both parties.

Second, take the state out of the ownership equation by privatising the roads by both distribution and sale to competing interests so that motorists can come to contractual agreement themselves with road owners on mutually agreed terms and conditions allowing use of the road in question. If motorists feel the owner of one road is excessively zealous, they may be able to choose to bypass that particular route and contract with a different road owner. If the road owner doesn’t want a particular car or driver on their road because (for instance) they pose a likely danger to others, they can exercise their property right and exclude the car or driver from their land.

The incentive will be to make driving on the road more convenient and thus attract more users in order to maintain profit levels for the shareholders in companies that own and manage the traffic routes. There may be other less intrusive ways of screening for alcohol intoxication and other causes of functional driving impairment than the current roadblocks. The free market has a knack of finding solutions to problems that minimise customer inconvenience. Our boys and girls in blue would do well to remember that. And our elected representatives should also consider implementing a pilot scheme to privatise the operation of some of our highways, especially new ones. Give New Zealanders a tax break and allow tolling of roads so that the user pays. Redirect police back into their proper role of protecting the public. End the harassment of motorists. And compensate those who are harassed.

I reckon five bucks per innocent motorist stopped is fair enough, until the law is changed. What do readers think? It would certainly offer a small incentive not to drink and drive!

“When the people fear the government, there is tyranny – when the government fears the people, there is liberty.” - attributed to Thomas Jefferson

Harriet Frishmuth's sculptures embrace the spirit of romantic realism, with figures that enchantingly capture moments of energetic movement and quiet grace. Harriet Whitney Frishmuth (1880-1980) is relatively unknown today, yet during her active period she was one of the most widely known and highly admired artists of the time. Her joyous depiction of the female nude, usually in dynamic poses drawn from dance movements, is the epitome of romantic realism in sculpture. Born in Philadelphia at the height of Western culture, and most active in the 1920s and early 1930s, she was as much the creator of her time as influenced by it. Frishmuth was taken to Europe by her mother at a young age, received her early education in Switzerland, and was introduced to sculpture at nineteen. She studied briefly in Paris with Rodin, and later became a sculptor’s assistant in Berlin. After moving back to New York, she studied anatomy by dissecting bodies at the College of Physicians and Surgeons and taking classes at the Art Students League from Gutzen Borglum (who later created Mount Rushmore). After winning the prestigious St. Gaudens award in 1910, she established an art studio on Park Avenue, and in 1913 moved to a converted stable in Sniffen Court (at 152 East 36th Street — not far from where Ayn Rand would later live). This new home became her sculpture studio for the most important years of her output, as she herself would later say. "I did my best work in my studio-home in Sniffin Court."

The Vine, 1921, Metropolitan Museum of Art

She soon displayed her characteristic style — nudes with the exuberance of a Rostand play and the litheness of a Desha dance. (Desha Deltiel, 1892-1965, a young Yugoslav émigré and Frishmuth's favorite model, whom she met in 1916, posed for The Vine (1921) among many other pieces.) Among her most well-known and best-loved pieces, a large version of The Vine is housed in New York's Metropolitan Museum, but a nearly identical copy (though much in need of repair) stands in the outdoor sculpture garden on the UCLA campus. (The original is only twelve-and-a-half inches high, and there were 350 castings of that version, which were highly prized by collectors.) In 1925, Frishmuth completed Crest of the Wave, versions of which can be found in St. Paul and elsewhere. Her figures combine classical elements of form with the dynamic spirit that entered the arts in the 1920s. Frishmuth would often play music on the Victrola for her dancer models and then capture their movements, a very different way of working from the traditional method of models in static poses. That said, one of Desha's most notable qualities was her well-known ability to hold the most difficult static poses without moving for long periods.

Dance, 1921

Though Frishmuth herself said that her work was created to "express the joy of living," her pieces were not all of one mood. They range from the exuberance of Joy of the Waters (1912), to the dynamism of The Hunt (1921, Dayton Art Institute), to the Art Deco-style Speed (1922, Ohio University), which was completed while she worked for a short time at Gorham Co New York City. (She was employed by them modeling ashtrays, bookends, and small figures which they cast and sold.) There is also the quiet, loving serenity of Temptation (1922, Minneapolis Institute of the Arts), and the sheer loveliness of Sweet Grapes (1928, Majestic Theatre, San Antonio, TX), versions of which range from nineteen inches to five feet.

Temptation, 1922, Minneapolis Inst. of the Arts

From personal accounts, her childhood was a happy one, she was honored in her time, and was pleased with what she'd accomplished — an example that an artist can create great and beautiful work without great suffering.

Tuesday, 27 July 2010

By the way, if you want a better economic education than you’ll get at most business schools these days, the Mises University starts today! Be sure to watch the live broadcasts all week for free. http://fb.me/E2zwVxV4

Consumer spending represents around two-thirds of the economy. T or F?

If prices are stable, that means there is no inflation. T or F?

Money is a creation of government. T or F?

A period of gently falling prices is a bad thing. T or F?

Before the Reserve Bank/Fed/Bank of England was created, the world was wracked with inflations, booms and busts. T or F?

Economics is a "value-free" science. T or F?

Saving takes money out of the economy. T or F?

Interest rates are set by the Central Bank. T or F?

A good war is good for the economy. T or F

Government spending pumps up an economy in depression. T or F?

Banks are inherently bankrupt. T or F?

These aren’t trick questions, but you will have to think carefully—particularly if you get your economics from the likes of Rod Oram, Paul Krugman or Alan Bollocks.

UPDATE, WITH ANSWERS (No peeking!):

1. GDP measures a country's total economic activity. T or F?

FALSE: So-called "Gross" Domestic Product is actually much closer to a country's nett product than a gross product.

Since it only counts final goods and services instead of the goods and services used to produce those goods--for example, it only counts bread, but not the flour, water, wheat and yeast used to make it and still being produced; it only counts what comes out of car factories, and not the products of mines, foundries and steel mills --it is, in actual fact, not a gross figure at all but actually a highly "netted" figure.

And since what this figure largely excludes is business-to-business spending, what it conceals is the largest source of spending in any economy, --says George Reisman, business-to-business spending "is analogous to an iceberg, nine-tenths of whose volume is concealed beneath the surface" by the way GDP is measured.

Reisman and other Austrian economists like Mark Skousen, GerardJackson and Richard Johnsson favour instead a measure called either Gross Domestic Revenue or Gross Domestic Expenditure, which is less susceptible to manipulation by government. It turns out that Gross Output (a similar figure used by the US Bureau of Economic Affairs, BEA) is about twice the size of so-called "Gross" Domestic Product. In the US in 2002, for example, Gross Output according to the BEA amounted to $18.7 trillion, while GDP equalled just $10.6 trillion.

2. Consumer spending represents around two-thirds of the economy. T or F?

FALSE: This shibboleth will be heard everywhere, but it's just one more error created by confusion over what exactly is measured by the GDP figure.

This is the ridiculous idea that you can still hear trotted out by morons on nearly every news broadcast when retail figures are announced; the fatuous nonsense that fuelled the likes of Kevin Rudd’s shopping subsidies lat year ($1000 cheques backed by thin air which most Australians sensibly saved); the absurd idea behind Helicopter Ben Bernanke’s speech boasting he has “a technology called the printing press” that is the salve for every problem; the fallacy that fuels a thousand calls for stimulunacy, a hundred-thousand for “a boost” in “aggregate demand,” and should have sunk the reputations of everyone who went along.

Though it's hidden in the "netted out" arithmetic of the GDP, by far the majority of spending and income payments in the economy are not consumer spending at all but productive spending, i.e., spending for the purpose of making sales, i.e., business-to-business spending. In other words, for the stuff that really does make the economy go round.

Remember that inflation does not simply mean rising prices. More accurately, it refers to the cause of widespread price rises, which is a large increase in the quantity of money in the broader sense that serves to dilute the purchasing power of the monetary unit.

The fact is that rather than protecting an economy, attempting to keep prices stable simply distorts important price signals, causing economic dislocations.

When productivity is high and supply is increasing, even mainstream economics tells us that prices should come down. And when things are going poorly and supply tends towards diminishment, even mainstream economics recognises that prices will tend to rise. It is the meddling with these very price signals by central banks (in the name of price stability) that leads to all the economic dislocations that lead to economic chaos.

“The absence of a healthy ‘deflation’ in the prices of consumer goods in a period of such considerable growth in productivity as that of recent years provides the main evidence that the monetary shock has seriously disturbed the economic process.”

But instead of being able to enjoy these cheaper prices, the Central Bank oversaw instead an enormous expansion of the money supply that kept prices up---an expansion that consisted of little more than mountains of cheap credit being flushed through the credit markets and into more and more malinvestments; cheap credit that in the twenties spilled over into the stock market (to fall to ground in 1929) and in the 2000s was mostly directed into housing markets, leading to everyone thinking they could use their house like an ATM machine.

Which they couldn't. Economically speaking, their houses were more like malinvestments than genuinely productive investments.

Just to make the point more plain: the pursuit of so called “price stability” (which generally involves a fair degree of meddling with CPI definitions) provides neither an anti-inflationary panacea (particularly not when housing prices are booming at a time of so-called stability) nor a sound guide to what interest rates should be. M.A. Abrams makes the point clearer:

“In an economically progressive community (that is, one where the real costs of production per unit are falling and output per head is increasing), any additions to the supply of money in order to prevent falling prices will be hidden inflation; and in a retrogressive community, (that is, one where output per head is diminishing and real costs of production are rising), any contraction of the supply of money in order to prevent rising prices will be hidden deflation. Inflation and deflation can occur just as well behind a stable price level as when the price level is rising and falling.”

The proper policy prescription is not to tinker with the economy by trying to keep prices stable, but instead to keep the hands off altogether, and simply to keep the money supply stable.

FALSE: Money originated in the economic activity of people buying and selling in a barter economy, and realising eventually that even if you didn’t like or use a particular commodity yourself, if everyone else seemed to like it then that was a good commodity to have.

Yes, it’s true that governments now print the money bills you hold in your wallet, but that’s simply because monarchs over history took over what was already happening naturally because they saw a way to literally clip the ticket.

So money originally was originally a hard commodity that was chosen because it was both highly saleable and it held its value. Now it’s a piece of paper that is only highly saleable because the government tells us that it’s all we’re allowed to use for buying and selling. And as for holding its value . . .

But you might object that government creates money today. Well, even in the present day, government isn’t the largest creator of money. While it certainly is the largest owners of the printing presses that print paper money, the largest creator of money these days is actually the banks, who under the fractional reserve banking system create money out of thin air simply by the push of a computer key, without even going to the effort of running any printing presses at all. And as we’ll see later on, the amount of all that electronic money swamps the paper money on which it’s leveraged . . .

5, A period of gently falling prices is a bad thing. T or F?

FALSE: In fact, a period of gently falling prices is a period in which everyone is getting gently wealthier, because with the same amount of money in their pocket, they are able to buy more and more.

The idea that gently falling prices, what know-nothing economists call deflation is a bad thing is is one of the most pernicious ideas ever put into an economic textbook. Because what’s most important in this context is knowing why prices are falling. There may be three reasons.

Imagine first a place where producers are surging ahead and everyone’s benefitting – a place where technology is making more and more and better products; where ever-improving agricultural techniques mean food is coming out of the ground in ever-increasing amounts; where radically improved construction techniques (and the absence of town planners) means access to housing is getting easier and easier; where new inventions and new technologies are making travel easier and cheaper…

This would be a great place to be, wouldn’t you think? It would be, because everything would not just be becoming more increasingly abundant, it would also be becoming cheaper. Andrew Bernstein summarises the point:

“There is only one method to generate a sweeping prosperity in a specific nation or across the globe: create a colossal supply of consumer goods relative to demand for them, which thereby lowers the price of vital goods and so facilitates raising real wages.”

This is what real prosperity actually looks like: goods becoming more abundant, meaning the price of goods becomes ever cheaper; meaning that because the value of every dollar in your pocket is becoming more valuable, so too is the value of every dollar in your pay cheque: meaning that real wages are actually increasing. This is what real prosperity actually looks like, just like the prosperity enjoyed in Britain and NZ in the period from 1860 to 1914 as the years of the earlier Industrial Revolution bore fruit [click to enlarge]:

A period that (because of the periods of falling prices), know-nothing economic historians still refer to as periods of recession. (Wouldn’t you like to have one of those recessions now?)

“because they enable the reduced amount of spending that deflation entails to buy as much as did the previously larger amount of spending that took place in the economic system prior to the deflation.”

Reisman calls this misunderstanding about the connection between deflation and falling prices one of the most pernicious and persistent economic fallacies. Like its destructive mirror-image inflation, deflation is not a measure of a change in prices; it’s more accurately measure of a fall in the money supply. And whatever the government and its central bankers tell you about them protecting the money supply, the only way to ensure your money supply doesn’t collapse is to use a hard commodity as your money, without making any new money on top of that. Which in contemporary terms means a gold money (because all the gold in the world ever mined still exists) with no fractional reserve banking leveraged on top.

Because as you can see from the period in New Zealand after the Reserve Bank was created, far from making every dollar in your pay cheque worth more, with every one of the billons of new dollars they printed they made it worth less.

6. Before the Reserve Bank/Fed/Bank of England was created, the world was wracked with inflations, booms and busts. T or F?

FALSE: Choosing between competing values is actually the very beginning of economic activity—and the beginning of economic understanding.

Reality doesn’t allow us to eat our cake and have it too. As adults, we understand that. As adult economists, we understand that too--we understand that economic activity begins by choosing between competing actions—”acting man” choosing on the basis of which action he values most—either eating the cake, or baking one-hundred cakes, selling them and buying a delivery truck with the proceeds.

Economics is all about values. Take the famous double-thank-you moment of trade. You sell me a beer for five dollars because you value my five dollars more than you value the beer; whereas I value your beer more than I value the five dollars. We’re both happy because we’ve come out ahead in our respective value scales.

Economics is all about values. It’s through a multiplicity of exchanges like that one that economic valuations themselves are set. And it’s through economic activity like exchange and production that resources are produced and discovered, and brought into ever higher-value use.

Economic activity itself is inherently value-laden. It requires recognition not just of individuals’ own differing valuations of goods, but the understanding that the job of production begins with the realisation that goods have objective value. in his “General Theory of the Good,” the founder of Austrian economics, Carl Menger, all but makes this point explicit. In describing what four things must be simultaneously present in order for a thing to become a good, or, as he often puts it, have “goods-character,” he writes:

“If a thing is to become a good, or in other words, if it is to acquire goods-character, all four of the following prerequisites must be simultaneously present: 1. A human need. 2. Such properties as render the thing capable of being brought into a causal connection with the satisfaction of this need. 3. Human knowledge of this causal connection. 4. Command of the thing sufficient to direct it to the satisfaction of the need.”

What he describes here is the very stuff of value creation.

Economic activity is all about the creation of values.

Furthermore, it’s essential to understand that economic activity itself not only in undertaken in defence of human values--specifically the value and prosperity of human life—it relies on specific life-giving human values to take place.

It requires the freedom for people to make and carry out their choices.

It requires the rule of law so those choices once made my be protected, and with them to the successful results (if any).

It requires respect for reason and rationality, the principle value undergirding all other values, and all successful human production.

Economics is not value-free.

8. Saving takes money out of the economy. T or F?

FALSE: Rather than taking money out of the economy, savings are in fact the source of the largest amount of spending in the economy.

Thinking that saving withdraws money from the economy is yet another error brought about by the economic confusion of the GDP delusion .

Saving does not mean putting you money under your bed. It simply means deferring today's consumption until a later date.

If you’re a consumer, that might leaving one's saved resources available to be put to productive use by someone else in the meantime—which in a sane world means giving it to a bank to lend out to someone who will put it (hopefully) to good use.

If you’re a producer, that means putting the resources you would have otherwise have consumed (maybe by buying that yacht, or by funding all your ex-wives) back into your production instead—either by buying new producer goods, paying rents and the wages of your workers, or by investing in new capital goods.

“This is the meaning of the concept ‘investment.’ If you have wondered how one can start producing, when nature requires time paid in advance, this is the beneficent process that enables men to do it: a successful man lends his goods to a promising beginner (or to any reputable producer)—in exchange for the payment of interest. The payment is for the risk he is taking: nature does not guarantee man’s success, neither on a farm nor in a factory. If the venture fails, it means that the goods have been consumed without a productive return, so the investor loses his money; if the venture succeeds, the producer pays the interest out of the new goods, the profits, which the investment enabled him to make. “Observe, and bear in mind above all else, that this process applies only to financing the needs of production, not of consumption—and that its success rests on the investor’s judgment of men’s productive ability, not on his compassion for their feelings, hopes or dreams. “Such is the meaning of the term ‘credit.’ In all its countless variations and applications, ‘credit’ means money, i.e., unconsumed goods, loaned by one productive person (or group) to another, to be repaid out of future production. Even the credit extended for a consumption purpose, such as the purchase of an automobile, is based on the productive record and prospects of the borrower. Credit is not—as the savage believed—a magic piece of paper that reverses cause and effect, and transforms consumption into a source of production. “Consumption is the final, not the efficient, cause of production. The efficient cause is savings, which can be said to represent the opposite of consumption: they represent unconsumed goods. Consumption is the end of production, and a dead end, as far as the productive process is concerned. The worker who produces so little that he consumes everything that he earns, carries his own weight economically, but contributes nothing to future production. The worker who has a modest savings account, and the millionaire who invests his fortune (and all the men in between), are those who finance the future. The man who consumes without producing is a parasite, whether he is a welfare recipient or a rich playboy…”

..or a once-popular president.

It’s a fact (even though it doesn’t show up at all in the GDP figures) that business-to-business spending is overwhelmingly the greatest source of spending in the economy, and all of that productive spending is paid for out of savings, i.e., out of deferred consumption.

"an amount equal to the sum of all costs of goods sold in the economic system plus all of the expensed productive expenditures in the economic system. It is these costs which must be added to GDP to bring it up to a measure of the actual aggregate amount of spending for goods and services in the economic system... And because productive expenditure is the main form of spending, most spending in the economic system depends on saving. Even consumption expenditure depends on saving, inasmuch as saving is the basis of the payment of the wages out of which most consumption takes place."

Which means that it's not consumer spending that drives the economy at all: it's saving.

FALSE: Yes, the Reserve Bank’s “Official Cash Rate” is set by Alan Bollocks with a view to “price stability,” but real interest rates are actually set by people’s natural “time preference.” The dislocation between this natural time preference and the rate dictated by the government’s central banker is the largest cause of the market dislocations that cause the boom and bust cycle.

According to mainstream economic models, interest rates can't do their job on their own -- they are governed by irrational "animal spirits" (yes, this is the sort of 'thinking' on which the mainstream economic models are based) -- and they require the likes of Alan Bollocks and Ben Bernanke to do the job for them with calculations like this one, in which the interest rate, r=p + 0.5q +0.5 (p-2) +2, and p is defined as the inflation rate over the previous year, and q represents a notional figure based on guessing what 'full output' looks like.

Elegant, huh? The figures '2' appearing there, by the way, indicate the banker's nominal inflation target of two percent. The guess never gets any better than a guess.

If you've ever wondered why economies experience severe business cycles -- lurching cyclically from boom to bust, from inflation to stagflation -- then the heart of the answer lies in the failure of this flawed economic model. Specifically, in the difference between the interest rates brought down from the the mountain (or received from their calculators) by the likes of St Bollard, St Greenspan and St Bernanke, and the 'natural interest rate' that would be set by the market if interest rates and the money supply weren't being meddled with by the likes of these beatified few.

Because the 'natural' interest rate is not set by central bankers at all. In fact, it's not even set by bankers of any kind. It's set by the natural time preference for money of numerous individuals, as shown by their spontaneous decisions to save or consume or invest.

Time preference is simple to explain, but profound in its implications. It is simply a measure of how much I prefer present satisfaction to future satisfaction, as demonstrated by my own actions. It’s pretty certain that every drinker is going to prefer a beer now than one or two next week—or even two or three next year. That’s time preference—a preference for something now over more of it later. And despite what Alan Bollocks and Ben Bernanke say, it’s that simple equation that really drives real interest rates.

If I demonstrate by taking out a loan that I prefer $100 dollars now to $110 one year from now, then that suggests a 'natural' interest rate of ten percent, as demonstrated by my own demonstrated time preference. If I find a lender willing to forego his own consumption of that $100 for one year on the basis that he will receive my $110 in a year, then he has demonstrated a mutually reciprocal time preference.

It is on simple decisions such as this on which a rational market is based.

The natural market interest rate is simply the sum of all such preferences shown by borrowers and lenders across all markets. If coordinated through the voluntary choices and actions of individual actors, it results in the necessary constraints and incentives to keep savings in line with investment spending, and the production of consumption goods in line with consumption.

That is, it provides the price signal given by buyers themselves as to what their future demand will be. Higher natural interest rates means more plans to spend on consumer goods now. Lower interest rates means more plans to save now to buy more consumer good later, which means more investment capital available now (through savings)to produce the increased amount of capital goods needed now to make more consumer goods in the future.

Thus does the natural rate of time preference harmonise the actions and future plans of producers and consumers.

This is not based on wishes issued by central bankers, but on people's demonstrated willingness to forego present consumption. Left alone, instead of being used to further the political goals given to the world's central banks, interest rates can do their "growth governing" job - if, and only if, they are allowed to.

It’s the difference however between these real or natural interest rates and the ones that Alan and Ben set that drive all the dislocations, as Gene Callahan explains:

“What the central bank tampers with is the outcome of the consumers' "votes" on time preference, which is the natural (originary) rate of interest. Consumers' time preferences tell us how much capital will become available through consumers' saving... When the central bank artificially lowers the rate of interest, entrepreneurs make their plans believing that consumers are willing to delay consumption and save more than they really are.

This is where things start getting out of whack; and it’s where the problems really start. Sustainable growth comes from recognising people’s natural and demonstrated time preferences to allocate capital between consumer spending and investment. Unsustainable growth is the inevitable result of trying to fake it.

FALSE: In real human terms war is nothing but destruction. In real economic terms, just the same.

There are usually two arguments used to justify this dangerously destructive notion. The first is that the production of war goods somehow stimulates an economy in depression. The second, sometime used to explain the reason for Germany’s and Japans post-war prosperity, is that the destruction of old infrastructure brought about by war stimulates the construction of new and more efficient infrastructure, releasing something called “backed-up demand.”

Both of these nostrums are as absurd as they are dangerous.

However they are paid for—and in most wars including recent ones, wars are usually paid for either by borrowing or printing money--war goods themselves are not like producer goods, (which are used to make sales and so generate further economic activity); instead they are more like consumer goods in that once they are used up all the “good” they have done is all gone.

In fact, the situation is even worse, because the consumer goods at least provide some pleasure or sustenance while being consumed; war goods however are simply shot into the ground, or into cities, or into other human beings—the only good that might be done is in those few cases when the right targets are chosen to shoot at, but in that case any benefit comes about by the destruction of people who have your own destruction as their stated goal, not because of the creation of trillions of dollars of war goods.

The second fallacy relied upon--that a country “starting from zero” again has an economic advantage over those still “encumbered” by aging and inefficient infrastructure—is equally destructive, and equally wrong. It’s just another example of our old friend the Broken Window Fallacy (a fallacy every sound economist should know by heart). As Henry Hazlitt pointed out,

“if this were really a clear net advantage, Americans could easily offset it by immediately wrecking their old plants, junking all the old equipment. In fact, all manufacturers in all countries could scrap all their old plants and equipment every year and erect new plants and install new equipment.”

Read Henry Hazlitt’s thorough debunking of this whole fallacy in his short and pithy piece from his book Economics in One Lesson, The Blessings of Destruction.

The apostles of using government spending to “stimulate” an economy don’t just call for spending. They call for truckloads of spending. Even the trillions of dollars already pissed against the wall in the world’s biggest ever golden shower--The Biggest Bill in the History of the World, and still counting--are still not enough for the likes of Paul Krugman, who calls for more and more and still trillions more. All to be paid for out of deficits.

But the real truth evaded by Mr Krugman and his Keynesian conferes is that "Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created"

“In the same sense as a housewife, the government is not a producer but a consumer, who is dependent upon producers. All of its physical production, like hers, is in the last analysis a consumptive production. It is a production which cannot replace the means with which it began ... a production which leaves the government poorer by the amount of funds it has expended. In order to continue the activity, resort must be had to an external source of funds -- in the government's case, the taxpayers or the printing press.”

Government spending always has to be paid for. Deficits even more so—when even taxes aren’t enough to pay for the government’s consumption, resort is always had to either borrowing or the printing press, both of which actions withdraw resources from genuine producers.

The effect of all this 'investment-that-isn't' by governments is not to “pump” anything up apart from the deficits, while making possible the wholesale consumption of real assets that had been produced by producers, (with the price of producer goods having been pushed up by government spending).

The net result is that the whole economy is poorer by the extent to which taxpayers' potential for genuine investment and sustainable profits is curtailed by make-believe investments and the slow consumption of our seed corn.

12. Banks are inherently bankrupt. T or F?

TRUE: Under the modern fractional reserve banking system, if a bank with 100 customers had all 100 show up to get their original savings out, only two of them would be successful. This is the chief reason modern banks are so inherently unstable.

When you “lend” your money to a bank by opening an account there, in which you put let’s say $1000, you may or may not realise that this allows the banking system to create (under current laws) around fifty times that amount as loans. Thus, under the magic of the fractional reserve banking system (in which the “real reserve” of cash is but a fraction of the “fiduciary” money created on top of that) your $1000 of fresh funds becomes around $990 dollars of your money being loaned out, and $49,000 of credit created out of thin air.

Which means that there are actually multiple claims on each dollar still contained in the bank itself.

Which means (if you’re watching the magician closely) that it’s here that inflation actually enters the whole system: via newly created credit leveraged on the back of a much smaller amount of notes and coins.

Which means too that when things go tits up, banks are lending our vastly more money than they can actually repay to their savers.

“Stimulus” like this is a way governments and bankers fake prosperity. It's a way of 'putting a penny in the fusebox,' allowing economic activity to artificially expand and to keep expanding, yet just as putting a penny in your fusebox now only makes the eventual explosion of your whole circuit board more likely, so too does the cheap 'socialised financing' of fake credit presage a more serious meltdown.

The first result of debt-based monetary expansion is that those borrowers who are ‘first in’ get first use of the new money before the inflationary results of that monetary expansion are noticed through the rest of the economy. But the inflation of prices in the class of assets in which the new debt is invested is inevitable – even if it is confused for “growth” and “prosperity” instead of simply price inflation.

The reason for the inevitable bust is not simply that these asset prices are inflated beyond real values. It’s that the phoney credit expansion cannot continue indefinitely; and neither do the resources exist to allow all the projects that the money has been borrowed during the expansion to be completed.

As Warren Buffett is supposed to have said, "It's only when the tide goes out that you learn who's been swimming naked." Those loans that were made and debts that were incurred which otherwise would not have been made or incurred are what intelligent economists recognise as malinvestment (a misallocation of resources often following a period of artificially excessive credit). They are chickens searching for somewhere to come home and roost once colder economic winds start blowing. The headlines you've been reading in recent days and weeks is the sound of their feathers flying overhead as their financial perches collapse.

And when the “rapid growth” of a credit-created boom turns quickly into a debt-based bust, the first ones to be found swimming with their bollocks out are the banks (a big “Hi there!” to Northern Rock and the boys at Citibank and Bank America), who have lent out way more than they can ever recover; and the next ones to be dumped on is everyone else, because the money supply (which was created on the back of all that bad credit) now wants to contract—and the banks now want taxpayers to bail them out.

Thus we find that fractional reserve leads to inflationary boom which leads to inevitable bust which leads to inevitable deleveraging which (these days) leads to trillion-dollar bank bailouts—which leads to the same thing starting over, and both taxpayers and savers getting screwed.

Which is why it’s not just banks that are inherently bankrupt under a fractional reserve banking system. So too is the economic theory behind it.